Wal-Mart’s Concern: A Big Importer in Times of Rising Isolationism
In late 2016, President Donald Trump was elected with a platform that called for increasing isolationism and more protectionist trade policies in the United States . With a vision of placing ‘America First’, Trump ran on re-negotiating international trade deals that, in his opinion, were unfairly causing a large trade deficit for the U.S. . Wal-Mart, the nation’s top retailer by Sales , faces several risks arising from Trump’s proposed views on international trade.
Wal-Mart is particularly vulnerable to Trump’s protectionist ideas in both its U.S. and international segments. Domestically, Wal-Mart sources a ‘significant’ percent of its U.S. sales from foreign-made products . According to the Economic Policy Institute, Wal-Mart imported $49B in foreign made goods in 2014, relative to total U.S. sales of $340B . Consequently, Wal-Mart cautions in its 10-K financial report that changes to U.S. trade policy, such as increases in tariffs, could ‘materially adversely’ affect its financial performance . In addition to concerns with domestic store profitability, Wal-Mart also faces risks in its overseas markets, which generate 24% of Wal-Mart sales . The company reports that changes to U.S. policy could negatively impact Wal-Mart’s international performance both because of retaliatory tariffs in foreign countries and potential damage to the international reputation of U.S.-based companies .
As Wal-Mart contends with increasing isolationism in the U.S., the company’s strategy has mainly focused on carefully managing the political landscape but without meaningful changes to its supply change. However, to ensure its prepared to the deal with the isolationist megatrend, Wal-Mart should take meaningful steps to efficiently increase its domestic sourcing.
Company’s Strategy: Managing the Political Landscape
Wal-Mart’s main strategy in addressing the isolationist megatrend is carefully playing along with it publicly. In 2013, Wal-Mart launched a ‘Made in USA’ campaign to improve its image among consumers worried about the U.S.’s trade deficit. Specifically, the company announced plans to increase sourcing of American-made products by $50B over the next ten years . While the campaign was announced to ‘much fanfare’, the $50B commitment represented a mere 2% of Wal-Mart’s domestic merchandise spending . Furthermore, the strategy had little impact on Wal-Mart’s supply chain policies, as increasing labor and energy costs abroad were already causing suppliers to onshore production . Realizing that the nationalism megatrend is still mainly a trend in public opinion as opposed to policy, Wal-Mart is adeptly catering toward the pro-nationalistic constituency.
In the long-term, Wal-Mart is following a similar ‘politically-minded’ approach by promoting new policy ideas to increase domestic manufacturing. For instance, Wal-Mart suggested improvements to problems such as shortage of labor skills, lack of financing for manufacturing projects, complex regulations that create high compliance costs, and inefficient tax and trade policies . Wal-Mart long-term strategy is focused on making U.S. policy more conducive to domestic sourcing.
Additional Steps: Real Commitment to Domestic Manufacturing
Wal-Mart is taking several actions to improve its brand image to adapt to the isolationist megatrend, but the company should seek to find more meaningful ways to increase domestic production. A first step would be to better reap the benefits of manufacturing in close proximity to the target market. According to HBS Professor Willy Shih’s article in the Sloan Review, American corporations could gain a competitive advantage by using geographic proximity to reestablish close links between R&D and production facilities, product designers and manufacturers, and OEMs and their suppliers . In that spirit, Wal-Mart should encourage its domestic supply chain members to increase their competitiveness by using their geographic proximity to collaborate more closely with each other.
Another step Wal-Mart should take is to understand consumers’ true interest in U.S. made products. According to Wal-Mart, ‘country of origin’ is the second most important criteria (after price) that its online shoppers care about when purchasing products . Wal-Mart should build on this finding in its retail stores, such as having ‘Made in USA’ aisles to allow customers to more easily buy domestic products. While past research suggests that consumers are generally not willing to pay more for domestically made products , Wal-Mart should seek to better understand American’s appetite for ‘Made in USA’ and that way better prepare for the possibility of a further intensification of the isolationism and protectionism trends.
As Wal-Mart looks ahead, should it publicly embrace ‘Made in USA’ were possible, or attempt to steer clear of any public controversy? In what other ways could Wal-Mart promote the competitiveness of U.S.-made products? (word count 750)
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